Market Round Up

UK

• Unemployment is slightly down on previous quarter
• Markets unflustered by Chancellor’s spending review
• Fear of double dip recession seems to be subsiding
• Rates held at 0.5% but Monetary Policy Committee Minutes reveal three way split, with some members having concerns about inflation
• A £7bn reduction in welfare budget, an estimated 490,000 job losses in the public sector and an increase to the State Pension Age from 65 to 66 by 2020 were among the “highlights” of the Government’s Comprehensive Spending Review, but all in all markets were relatively unperturbed by these announcements

US

• President Obama faced mounting discontent from voters in the midterm elections.  Slow economic recovery and hostility toward Washington led to Republican gains
• US stock markets rose as investor risk appetite surged following news that the European Central Bank was delaying the removal of liquidity support
• Macro news flow on the housing market was supportive and retail sales figures for November revealed that consumers had been buying more goods for themselves

Europe

• Ireland’s woes continue to attract attention but not to the detriment to the Eurozone as a whole. Ireland’s financial rating was downgraded and placed on negative outlook due to the bigger than expected cost of dealing with its troubled banks.
• Europe’s largest economy, Germany, reported a drop in unemployment to below 3 million
• Muted stock recovery as significant fiscal tightening continues

Asia & Emerging Markets

• China strives for stability and raised interest rates for the first time since September 2007 (25bps to 5.56%)
• Inflationary pressure and concerns over potential property bubbles building in some countries in Asia
• Strong month for emerging economies as Brazil, Columbia and Mexico performed well with markets in Peru leading the pack with an 11% bounce benefitting from the continued strength of the gold price

Japan

• Government action so far unsuccessful in stimulating consumer spending and lowering the benchmark interest rate to a range of 0.0% to 0.1% failed to support a market struggling against yen strength

Fixed Interest

• Continued support for the bond market but long term inflation risks remain
• Valuations of inflation proofed debt need to be examined carefully
• Strong corporate profitability supports the improvement in bond default rates

Joint Investment Conference

Don Jordison

Manager of Threadneedle UK Property Fund
Don runs a well diversified portfolio of UK commercial properties, but has deliberately avoided prestige properties. He prefers to invest in buildings occupied by Government departments as the Government do not default on their rent and have high occupancy levels.
He continues to run his fund with a focus on income generation and a strong yield. Having held a significant proportion in cash he is now fully invested. Income streams into the fund remain strong

Richard Buxton

Manager of Schroder UK Alpha Plus Fund
Richard is now less concerned about inflation in the shorter term and he does not think there will be an increase in interest rates for at least twelve months. He is also increasingly confident that we will avoid a double dip recession. Although he thinks economic growth will remain low he is generally bullish about equities and anticipates a strong return from UK markets in 2011.

Richard Woolnough

Manager of several M&G Fixed Interest Funds
In common with Richard Buxton, Richard is not concerned with short-term inflation numbers. He sees value in UK Corporate Bonds but no value in Government Gilts, where yields have plummeted. The default rate has fallen and will continue to do so, in his opinion, and this further supports his positive outlook for the sector.

Conclusion

Concerns about Ireland and the Euro have moved off the front pages but understandably concerns remain about it spreading to Portugal and Spain. The consensus of opinion at the recent investment conference is that interest rates will remain at current levels all next year and many fund managers are bullish for equities. They agree that yield remains fundamental to generating steady overall returns. Corporate Britain is still in good shape with higher profits being reported. There is a growing belief that the private sector will absorb job losses from the public sector and with some £150 billion cash in FTSE 100 companies this should lead to some merger and acquisition activity next year.
Have a Happy Christmas and look out for our Newsletter in January.


Date of Next Meeting:  11th January 2010